Understanding Technical Analysis

When an investor is in a dilemma of picking up a stock, fundamental and technical analysis are the tools which help the investor. Having seen what fundamental analysis is, let us delve into technical analysis.

Technical analysis helps to evaluate and predict performance of a stock based on the history of the stock and its price movement. Technical analysis helps in knowing when to buy or sell a stock.

Understanding of Technical Analysis includes
• Trend
• Support and resistance
• Technical indicators
• Price patterns

Let us know about each one in detail
Trend: It explains the direction of movement of share price. This is of three types being uptrend, downtrend and horizontal trend. In an uptrend movement there is a series of higher highs and higher lows.

This indicates that at the stock value would increase in the future. Downtrend implies a series of lower highs and lower lows. This indicates the decreasing value of the share price. Horizontal trend indicates the movement of higher highs and lower lows at the same level. There isn’t much profit in investing stocks which have a horizontal trend.

Support and resistance: If observed properly every stock fall to a certain price level and rises again. At that price the stock finds it support. If a stock falls below its support level it is better to exit at this point. Some stocks reach a high level or price and fallback constantly.

At that point the stock is resisting itself. If a stock moves upward breaking its resistance level, then it is advisable to invest in the stock because it indicates an increase in the price of the share. So, support and resistance help us in knowing when to buy and sell a stock.

Technical indicators: These are useful for intraday traders. It includes moving averages, bollinger bands, stochastic, pivot points, RSI, slope etc.

Price patterns: There are different chart patterns to understand the movement of a price. These include triangles,flags,head and shoulders and triple tops.

All of the above help us to know when to buy or sell a stock. (The author is a homemaker who dabbles in stock market investments in free time)